A lot has changed in recent years in
the world of indexed annuities. Much like the evolution of variable annuities in the 1990s, today's indexed annuities offer many more features and benefits than what many advisers may still associate with these products.
Among the options in the marketplace, fixed indexed annuities (FIAs) offer a strong suite of features that are hard to ignore, including access to potential market upside, a 0% floor to protect principal, guaranteed income, extended care and death benefit options, and a flexible way to transition from accumulation to income distribution.
As thousands of baby boomers retire each day — and increasingly fewer with pensions — demand for products that provide guaranteed retirement income will continue to accelerate. In fact, a recent survey conducted by Saybrus Partners found that 65% of financial professionals identified "retirement income distribution planning" as the biggest goal for clients in their 50s and 60s.
Advisers today, particularly in broker-dealer and bank channels, are well-positioned to increase their utilization of FIAs in 2016. According to LIMRA, market share of broker-dealers and banks has increased in recent years, and we see a tremendous opportunity for growth still ahead.
(Related read: Fixed indexed annuities continue their surge with record sales year)
Even with the Fed's recent rate hike, the relatively low interest rates we expect to see in 2016 will continue to make FIAs an attractive alternative to typical fixed offerings such as CDs, fixed income investments and money market accounts.
Simultaneously, uncertainty abounds in the financial landscape. Investors pulled $24 billion from equity funds in the first three weeks in January, according to Bank of America. With increasing volatility in equity markets, growing concerns around the global economic environment, and political changes on the horizon, many investors are spooked and looking for alternatives.
Everyone knows there are huge numbers of Americans approaching retirement age and increasingly fewer able to rely on the traditional guarantees of employee-sponsored pensions. Given the recent product evolution in the indexed annuity landscape, we expect the industry to see these products as a great complement to a client's portfolio, helping balance out many facets of protection that weren't available in years past.
NO TIME LIKE THE PRESENT
The first step advisers can take is to revisit what these annuities have to offer. Today's FIAs are not the indexed annuities of the past. In the last decade, there have been many innovations brought to market that can provide unique solutions to address multiple client needs and significantly benefit clients.
From an accumulation perspective, carriers today have gone beyond traditional capped strategies. Some real innovation has taken place on this front with the introduction of participation-rate and spread-rate strategies, which allow for greater upside potential by removing the cap, or the ceiling. Recently introduced customized indices also give clients access to greater diversification alternatives versus traditional S&P 500 strategies.
From a protection perspective, carriers have introduced many optional guarantees that can be tailored to address a wide array of client needs in retirement. FIAs today offer a variety of income, extended care and death benefit options that can allow a client to receive multi-dimensional levels of protection previously unavailable.
Additionally, the flexibility now offered through these products allows clients the ability to adjust the levels of income over time.
(More: Why indexed annuities could eventually outsell variable annuities)
FIAs can seem complex — and some of the features require careful explanation. Any technology that offers a clearer picture of how the features and benefits work will help to facilitate effective conversations with clients about the solutions FIAs bring to the table.
We are beginning to see innovation in illustrative tools in a couple different areas. These include technologies that allow consumers to better understand how a product's performance and guarantees work together, and how distributions impact other benefits.
STARTING THE CONVERSATION
Client conversations about retirement planning and annuities generally focus on four basic planning needs in retirement: accumulation, income, funding for healthcare expenses and leaving a legacy for loved ones.
Some of the questions advisers ask to uncover a client's most pressing concerns are:
• Are you worried about outliving your retirement nest egg?
• What are your existing sources of retirement income?
• Are you concerned about a possible future health issue?
• Do you plan to leave assets for your loved ones?
A client's answers to these questions will help reveal the protection gaps that cause them the most worry. With this information, advisers can match each client with the product that will best fill those gaps.
With enhanced product introductions, broadening areas of protection and better technology, today's fixed indexed annuities offer advisers a new set of solutions for the retirement concerns that most clients face.
Mark Fitzgerald is the national sales manager of Saybrus Partners, a life insurance and annuity consultancy for financial advisers.
